Friday, August 19, 2011

This morning I discussed a PBS documentary that looked at the Land Of The Poor. The following video is a more humorous look at class warfare through the eyes of Jon Stewart.

The focus of his discussion is on where we should increase taxes. I am of the view that our country faces a spending problem first and that taxes should be discussed after the main cancer has been cured.

However, the following provides another glimpse at the important divide growing in America.

People ask me what prompted me to begin purchasing and recommending gold and silver back in 2005. The answer is that I began studying finance in late 2004 and read through every maintstream finance book available. Most were informative, but one really shook me up and completely altered my view of the world.

It was called "Rich Dad Poor Dad," by Robert Kiyosaki.

I immediately read through all his books and purchased his online video teaching service which at the time was $9.95 per month; a large purchase for me.

One of the videos was a guest speaker named Michael Maloney who was discussing debt, the money supply, financial history, and something called gold and silver.

From there I consumed myself in study to learn more and try to confirm his facts and theory about what was coming for the global financial system. That opened the door to a whole new world, leading me to authors such as Peter Schiff and the a study of Austrian economics.

I had a chance to meet Michael Maloney in 2006 at a real estate seminar in New York City. He had a booth set up that was selling and talking about gold and silver coins in the corner of a huge showroom. There was no one at this booth. All the attendees were swarming the products that taught you how to flip homes and become a millionaire.

I had the chance to talk with him for about 25 minutes about everything I was studying and what he thought was coming for the world. I told him I was 100% invested in silver and that it was his fault. He laughed.

Fast forward 5 years later and Maloney is now a phenom. He has written a best selling book "Guide To Investing In Gold And Silver," and he is now the keynote speaker at investment conferences while the real estate booths sit empty.

The following is a recent presentation he gave to a large audience showing the potential for precious metals. The most important piece of the segment comes 20 minutes in when he discusses how the current monetary system works. It is about 10 minutes long.

If you can understand this concept alone it will have a life changing impact on how you invest for the rest of your life. (Including after the gold and silver bubbles burst when it is time to purchase stocks and real estate)

He then goes on to discuss debt, stock values, real estate, and where we go from here.

Looking back throughout history you can find that an empire has always collapsed for the same two reasons. Ironically, they are both due to a country destroying itself from within, like a cancer, not due to a new power taking over by force.

1. Their growth in military and social spending becomes too large to maintain creating a debt crisis

The United States spends close to 80% of our $3.7 trillion annual spending on military and social programs like social security and medicare.

2. The wealth distribution in the country shifts heavily toward a small rich few and away from an enormous group of poor.

The following video by PBS discusses the second factor taking place in the twilight of the current United States empire.

As an investor you just need to understand that the world will be changing soon. Politicians will keep the train going 130 miles per hour over the cliff until it hits the ravine and explodes. There is no stopping the force that is in place.

Things will soon be far worse than they are today. With a small amount of preparation you will be well ahead of the majority that are caught off guard.

Thursday, August 18, 2011

I had some drinks with one of my oldest friends last night who was in town from New York on business. He had another business associate with him and conversation came up about the economy and investing. He mentioned that he knew someone who was invested in gold, excitedly saying that he was "killing it."

Of interest to me was that he himself was not invested in gold, and that it was just one person he knew who was investing in the metal.

For most of the 2000's, gold in general moved in lock step with stocks as part of the "risk on" trade. Recently gold has stepped away from that group and become part of the "risk off" trade which is normally occupied by US treasury bonds.

The following graph shows this recent correlation:

It is my belief that treasuries are in the late stages of a bubble, and that gold is in the 5th or 6th inning of a secular bull market. (I believe gold and silver have at least one large correction ahead)

At some point investors will care not just about the return of the paper assets they hold, but how much purchasing power that paper provides them.

Then gold and silver will move into an asset class of their own in the final stages of their secular bull market: the mania blow off.

Monday, August 15, 2011

40 years ago today, on August 15, 1971, President Nixon made the historic announcement that the United States would be removed from the gold standard.

For the first time in world history all currencies globally were backed by nothing, and their values were now based on the exchange rate in the open market.

With the dollar unpegged as the reserve currency of the world, it allowed the United States to run unlimited deficits, which were once checked based on the amount of gold backing the currency.

The average currency system throughout history last about 40 years before something new takes its place. Our current experiment with a global fiat currency system is now in its final, terminal, stage with the suffocating debt laced throughout the entire world at every level.

It will end in spectacular fashion, with the central banks trying everything in their power to keep the current system in place.

"We should be careful to get out of an experience only the wisdom that is in it and stop there lest we be like the cat that sits down on a hot stove lid. She will never sit down on a hot stove lid again and but she will never sit down on a cold one either."

- Mark Twain

"It's waiting that helps you as an investor, and a lot of people just can't stand to wait."

- Charlie Munger

"Live as if you were to die tomorrow. Learn as if you were to live forever."

- Gandhi

"One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do. I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up. I wait for a situation that is like the proverbial shooting fish in a barrel."

- Jim Rogers

"Capitalism without financial failure is not capitalism at all, but a kind of socialism for the rich."

- James Grant

"At this juncture, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained."

- Ben Bernanke, March 2007

"Everything that needs to be said has already been said. But since no one was listening, everything must be said again."

- Andre Gide

"When people are getting richer and richer but they're not actually producing anything, it can't end well."

- Louis CK

"In economics things take longer to happen than you think they will, and then they happen faster than you thought they could."

- Rudiger Dornbusch

"I don't write about what I know. I write to find out what I know."

- Patricia Hampl

"Chains of habit are too light to be felt until they are too heavy to be broken."

- Warren Buffett

"Everyone has a plan until they get punched in the mouth."

- Mike Tyson

"Interest on the debt grows without rain."

- Yiddish Proverb

"You can have comfort, or you can have value. You cannot have both."

- Jim Grant

"Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful."

- Warren Buffett

"No very deep knowledge of economics is usually needed for grasping the immediate effects of a measure; but the task of economics is to foretell the remoter effects, and so to allow us to avoid such acts as attempt to remedy a present ill by sowing the seeds of a much greater ill for the future."

- Ludwig von Mises

"Men who can both be right and sit tight are uncommon."

- Jesse Livermore

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.

-Ludwig von Mises

"Most investors think quality, as opposed to price, is the determinant of whether something's risky. But high quality assets can be risky, and low quality assets can be safe. It's just a matter of the price paid for them."

- Howard Marks

"Whenever you find yourself on the side of the majority, it is time to pause and reflect."

-Mark Twain

"None are more hopelessly enslaved than those that falsely believe they are free."

-Goethe

"The longer the markets disobey basic rules of valuation, the bigger the opportunity for good investors to reap the benefits. Value investing works precisely because markets become dysfunctional at times."

-John Coumarianos

Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.

-Sir John Templeton

"No very deep knowledge of economics is usually needed for grasping the immediate effects of a measure; but the task of economics is to foretell the remoter effects, and so to allow us to avoid such acts as attempt to remedy a present ill by sowing the seeds of a much greater ill for the future."

- Ludwig von Mises

"People only accept change in necessity and see necessity only in crisis."

-Jean Monnet

Requiring a central bank to print money to increase government's purchasing power invariably ignites a hyperinflationary firestorm. The result through history has been toppled governments and severe threats to societal stability.

- Alan Greenspan

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

- Henry Ford

"Do you want to sell sugared water for the rest of your life? Or do you want to come with me and change the world?"

-Steve Jobs

"I'd be a bum on the street with a tin cup if the markets were always efficient."

-Warren Buffett

"The market can stay irrational longer than the investor can stay solvent."

- Keynes

"While the government struggles to save one crumbling enterprise at the expense of the crumbling of another, it accelerates the process of juggling debts, switching losses, piling loans on loans, mortgaging the future and the future's future. As things grow worse, the government protects itself not by contracting this process, but by expanding it."

-Ayn Rand, 1974

"The test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function."

- F. Scott Fitzgerald

"All our life, so far as it has definite form, is but a mass of habits - practical, emotional, and intellectual - systemically organized for our weal or woe, and bearing us irresistibly toward our destiny, whatever the latter may be."

-William James

"Men it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one."

-Charles Mackay

The greatest enemy of knowledge is not ignorance, it is the illusion of knowledge.

- Stephen Hawkings

"Give me control of a nations money supply, and I care not who makes it's laws."

- Amschel Rothchild

Illusions commend themselves to us because they save us pain and allow us to enjoy pleasure instead. We must therefore accept it without complaint when they sometimes collide with a bit of reality against which they are dashed to pieces.

- Sigmund Freud

Many of life's failures are people who did not realize how close they were to success when they gave up.